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Trends Extend, With GBP, EUR, CNH And Others Touching New Cycle Lows

  • The persistent rally in the USD Index is extending through the London close, with the greenback hitting new cycle highs of 112.866.
  • The move has been exacerbated by the protracted weakness in GBP (making up around 12% of the USD Index) following the UK mini budget earlier today. A number of sell-side analysts have revised lower their near-term forecasts for currency, with Citi now expected GBP/USD to trade in a range of $1.05-1.10, raising the risk of a "confidence crisis" in the currency. Similarly, JP Morgan write that the UK rate market's reaction today is a sign of a "broader loss of confidence in the government's approach".
  • Support for GBP/USD has proved ineffective on today's sell-off, with markets reaching new multi-decade lows of 1.0897. This narrows the gap with levels last seen in 1985 - with 1.0520 printed in February of that year.
  • Friday's fiscal statement - marking the most significant wave of tax cuts in a generation - will cause considerable uncertainty for BoE rates policy, with SONIA futures falling sharply throughout the day and prompting BoE rate pricing to spike to an implied rate of near 5.50% for the August 2023 meeting.
  • GBP/JPY also a notable mover given Thursday's BoJ intervention. The cross approaches support at 155.60 ahead of 155.17 - the 76.4% retracement for the March - June upleg.

MNI London Bureau | +44 203-865-3809 |
MNI London Bureau | +44 203-865-3809 |

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